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Test Bank: Chapter 1
Introduction
1. List three types of traders in futures, forward, and options markets
i.
________
ii.
________
iii.
________
2. Which of the following is not true (circle one)
a. When a CBOE call option on IBM is exercised, IBM issues more stock
b. An American option can be exercised at any time during its life
c. An call option will always be exercised at maturity if the underlying
asset price is greater than the strike price
d. A put option will always be exercised at maturity if the strike price is
greater than the underlying asset price.
3. A trader enters into a one-year short forward contract to sell an asset for $60
when the spot price is $58. The spot price in one year proves to be $63. What is
the trader’s gain or loss? Show a dollar amount and indicate whether it is a gain or
a loss.
__________
4. A trader buys 100 European call options (i.e., one contract) with a strike price of
$20 and a time to maturity of one year. The cost of each option is $2. The price of
the underlying asset proves to be $25 in one year. What is the trader’s gain or
loss? Show a dollar amount and indicate whether it is a gain or a loss.